Political Hay

Paul Ryan’s Adult Conversation

The liberal crowd asked for it. Now they can't deal with it.

By 4.6.11

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Before Paul Ryan's 2012 budget released yesterday, the Liberal Establishment was telling us that what was needed was an adult conversation on the budget and entitlements. Now that they have got their adult conversation, they can't handle it.

The Washington Post's E.J. Dionne began the brain-dead name calling, labeling the Ryan budget "radical," "irresponsible," and "extreme." This began the Post's shameful institutional policy of not reporting to its readers what the Ryan budget actually does, as compared to President Obama's budget, which I will show by the numbers below is actually what is radical, irresponsible, and extreme. The Post's institutional policy is to mislead its readers on the issue, in service to Democrat party politics.

Ryan's budget is actually careful and restrained, making sure that no one who is vulnerable is hurt by the undeniably necessary changes he proposes on behalf of the majority House Republican Conference. His budget carefully begins the process of fundamental entitlement reform, exempting anyone in or near retirement from any change at all, and adopting proven reforms that would actually benefit the poor, as I show below. Again, that is in sharp contrast to Obama's budget, which irresponsibly ducks any entitlement changes at all.

Three months ago in this space, I explained that the new big picture was now Ryan v. Obama. Ryan's 2012 budget released yesterday shows what I meant. The battle over the 2011 budget, which last year's Democrat-controlled Congress never provided for, has distracted from this real, big picture, with the Republicans trying to make marginal cuts to that 2011 spending with the fiscal year now more than half over. The government remains unfunded for the rest of this year because the Democrat-controlled Senate has never gotten around to providing for it at all. The House Republicans, and only the House Republicans, by contrast have passed numerous continuing resolutions funding the government for the rest of the year. Harry Reid and his Senate Democrats need to show up to work and do their job, or resign and let someone else do it.

But Reid and Obama are convinced that their base at least and enough of the public is stupid and will be easily misled by their party-controlled media allies into blaming the Republicans for any shutdown that occurs. So they seem to want to cause a shutdown over 2011, all the more to distract the public from Ryan's blockbuster Tea Party budget for 2012.

Real, Powerful Spending Cuts

Ryan fully delivers on the campaign promise of Republicans to cut federal spending, cutting the spending President Obama proposes in his disgracefully inadequate budget by $6.2 trillion over the first 10 years alone. In contrast, President Obama's budget actually proposes to increase runaway federal spending by $400 billion over the old CBO current policy baseline. President Obama has actually already increased federal spending by 28% compared to 2008, to $3.819 trillion this year from $2.983 trillion in 2008, after promising repeatedly in the 2008 election that he would adopt a "net spending cut." He then proposes in his 2012 budget to increase federal spending by another 57% to $5.756 trillion by 2021 according to CBO. That's not radical, irresponsible and extreme? Ryan's budget would spend a trillion dollars less in 2021 alone.

Ryan's budget would reduce domestic federal spending to below 2008 levels, restoring pre-stimulus, pre-bailout spending, again as promised. Federal spending is reduced to below 20% of GDP, the long-run, postwar, historical level, by 2015. With that level of federal spending prevailing on average for 60 years since World War II, to call it radical, irresponsible, and extreme is itself unprofessionally irresponsible and misleading.

To achieve that, Ryan's budget would defund and repeal Obamacare. It would eliminate hundreds of duplicative programs, and slash corporate welfare. That would include President Obama's "expensive handouts for uncompetitive sources of energy," establishing instead "a free and open marketplace for energy development, innovation and exploration," as Ryan explained in yesterday's Wall Street Journal. Ryan also explained that his budget "gets rid of the permanent Wall Street bailout authority that Congress created last year," in President Obama's Dodd-Frank so-called financial regulatory reform bill.

Ryan's budget reduces the federal deficit to below $1 trillion by next year, while President Obama proposes his fourth year of federal deficits over $1 trillion, at $1.2 trillion according to CBO. CBO projects that under Obama's proposed 2012 budget, the federal deficit is still $1.2 trillion by 2021. That's not radical, irresponsible and extreme? Ryan's deficit by that year is $385 billion, after achieving what is called primary balance by 2015, meaning that the budget is balanced apart from interest on the national debt.

Ryan's budget achieves full, permanent balance soon thereafter, with federal spending reduced to 15% of GDP by 2050, less than half the level of federal spending by that year under President Obama's budget. Indeed, by 2050, President Obama's budget would double federal spending as a percentage of GDP from the long-run, postwar, historical average, which is disgracefully radical, irresponsible and extreme.

Ryan's budget reduces the national debt by nearly $5 trillion relative to the President's budget in the first 10 years alone. As result, the national debt as percent of GDP is reduced every year, until the national debt is ultimately paid off entirely! President Obama's budget, by contrast, would double the national debt in his first term alone, and triple it by 2021. That's not radical, irresponsible, and extreme?

Fair and Competitive Tax Reform

The Ryan budget also begins the process of tax reform, restoring the federal tax burden to 18% of GDP, again the long-run, historical, postwar average. This would be achieved by reducing the top income tax rate to 25% for those earning over $100,000 a year, and 10% for those below that, in return for eliminating what Ryan calls a burdensome tangle of deductions, credits and other loopholes.

Ryan proposes the same on the corporate side as well, reducing the federal corporate rate to 25%, in return for eliminating the loopholes that allowed a megacorporation like GE to earn $14 billion in profits last year while paying no taxes. This responsibly restores some competitiveness to American business, which will soon otherwise bear the highest corporate tax rates in the industrialized world. Counting state corporate taxes, American businesses bear a corporate tax rate of nearly 40%, while the average corporate tax rate in the European Union has been reduced from 38% to 24% over the last 10 years. Yet, President Obama irresponsibly proposes to do exactly nothing about restoring American competitiveness. No wonder that under President Obama America has suffered the worst economic recovery since World War II.

The Ryan budget would also repeal the $1.5 trillion in tax increases in President Obama's budget, including the President's economic suicide plan of raising the top tax rates for nearly every major federal tax in 2013. Ryan would also repeal the $800 billion in tax increases imposed by Obamacare.

Economic Recovery at Last

For all these reasons, the Heritage Foundation Center for Data Analysis projects that under Ryan's budget nearly 1 million private sector jobs would be created next year. The unemployment rate would decline to 4% by 2015, putting America back to work with full employment. By the end of the decade, the economy would be creating 2.5 million jobs a year.

Economic growth would be restored, with $1.5 trillion in higher GDP over the next decade. That would mean $1.1 trillion in higher wages, an average of $1,000 more in family income each year.

By contrast, when President Obama's 2012 budget was fed into CBO's computer, the program projecting the future of the economy broke down and could not compute the result. That is again because it is President Obama's budget that is radical, irresponsible, and extreme, leading to bankruptcy for America.

Protecting Seniors and the Poor

In 1996, the then Republican Congress led by House Speaker Newt Gingrich fundamentally reformed the old New Deal Aid to Families with Dependent Children (AFDC) program. Federal funding for AFDC previously was based on a matching formula, with the federal government giving more to each state the more it spent on the program, effectively paying the states to spend more. The key to the 1996 reforms was that the new block grants to each state were finite, not matching, so the federal funding did not vary with the amount the state spent. If a state's new program cost more, the state had to pay the extra costs itself. If the program cost less, the state could keep the savings.

The federal funds under the reform were to be used for a new welfare program redesigned by each state based on work. To give the states broad flexibility in designing the new replacement program, the entitlement status of AFDC was repealed, as states could not be free to redesign their programs if their citizens were entitled to coverage and benefits as specified in federal standards.

Liberals screamed that this would create a "race to the bottom" among the states, leaving a million children starving. But in reality, within a few years two-thirds of those on AFDC left the rolls and went to work. Child poverty declined every year, falling by 2000 to levels not seen since 1978, with the poverty rate for black children reduced to its lowest level ever. Family income among the poor families leaving AFDC for work increased by 25%. Yet, in real dollars federal and state spending on the replacement programs by 2006 was down 31% from AFDC spending in 1995, and down by more than half of what it would have been under prior trends.

Ryan's budget extends this proven reform success to Medicaid, food stamps, and dozens of duplicative job training programs. Just like the 1996 AFDC reforms, this will greatly benefit the poor. Medicaid so badly underpays doctors and hospitals that the poor face major difficulties in gaining access to essential health care under the program, and suffer worse health outcomes as a result. States would be free under this reform to provide vouchers to the poor to purchase private health insurance, empowering the poor to enjoy the same health care as the middle class, because they would enjoy the same health insurance as the middle class. Yet, Nancy Pelosi and the Democrats are condemning Ryan's proposed reforms with the same brain dead arguments they advanced in 1996, now proven wrong.

Moreover, under Obamacare and President Obama's Medicare reimbursement policies, future Medicare payments to doctors and hospitals serving seniors are slashed by $15 trillion. This is reported in the 2010 Financial Report of the United States Government, released in December by the Treasury Department, which actually takes credit for President Obama for the savings.

Yet, Medicare's Chief Actuary reports that even before these cuts already two-thirds of hospitals were losing money on Medicare patients. Health providers will either have to withdraw from serving Medicare patients, or eventually go into bankruptcy. The unworkable, draconian effect of these Medicare cuts is why the U.S. Government Accountability Office issued a disclaimer of opinion on the Statement of Social Insurance component of the federal government's 2010 Financial Statement, saying, "Unless providers could reduce their cost per service correspondingly, through productivity improvements, or other steps, they would eventually become unwilling or unable to treat Medicare beneficiaries."

Unlike the careful, responsible, Medicare reforms proposed in Ryan's budget, these radical, irresponsible, extreme slashes in the Medicare payments to doctors and hospitals, adopted to finance Obamacare and its 20% expansion of Medicaid, applies to seniors retired today. In contrast, under Ryan's budget, new retirees starting in 2022 would enjoy the same choices under Medicare as members of Congress today under the federal employee health benefits program. Seniors will each be free to use their share of Medicare funds for the private health insurance plan of their choice from a list of guaranteed coverage options, similar to the popular Medicare Advantage program. Higher income retirees would get less, and lower income and sicker retirees would get more, ensuring continued access to essential health care.

With Ryan's budget, the battle lines have now been clearly drawn. It's the Tea Party versus President Obama and the Democrat party, who are resisting any significant spending cuts, and are committed to doubling the size of the federal government relative to the economy, ultimately spending America into bankruptcy.

 

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About the Author
Peter Ferrara is Director of Entitlement and Budget Policy at the Heartland Institute, General Counsel of the American Civil Rights Union, Senior Fellow at the National Center for Policy Analysis, and Senior Policy Advisor on Entitlements and Budget Policy at the National Tax Limitation Foundation. He served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under President George H.W. Bush.